Government response much greater in current recession than during Great Depression

At the peak of the Great Depression, unemployment hit 24.9 percent. During the 1930s, unemployment never dipped below 14 percent. By comparison, the current recession looks mild.

But so far, the federal government, including the Federal Reserve, has done much more to address the so-called "Great Recession" than it did during the first few years of the Depression.

Thomas Pierce, an economics professor at Cal State San Bernardino, said the government's response over the past 18 months or so has been larger and more active than any actions taken during the three years following the 1929 stock market crash.

Even later actions, including New Deal programs like the Civilian Conservation Corps and the Tennessee Valley Authority, Pierce said, look small by today's standards.

"Even though they were landmark programs, they were on a very small scale related to the relative size of the economy," he said.

Pierce said the reaction to today's recession is so different from that in the early years of the Depression because "we understand the economy differently than we did back then."

Before the Great Depression, and even after it started, Pierce said economists generally though government should stay out of the economy.

"The basic view prevailed that less government involvement was better and that the system would ultimately right itself," he said.

While the Federal Reserve has played an active role in keeping banks solvent over the past year and a half, it took a much more conservative approach after the 1929 stock market crash.

"The Fed has been making borrowing ... more available than it typically does," he said. "During the Depression, the Fed was much more conservative in its lending. It did not serve as a lender of last resort. At the time, they were doing what they thought was the best thing."

But by 1933, things had gotten worse. Pierce said 40 percent of the nation's banks failed between October 1929 and March 1933.

President Franklin Delano Roosevelt advocated a more active role for the government and, in 1933, temporarily shut down every bank in the country. Later, he started major government work programs.

But Pierce said even those programs weren't enough. The government had to be more involved.

"Those policies were appropriate policies and they were good policies, but the scale of them was not large enough to get us out of the Great Depression," he said.

They seemed so large, said Jack Pitney, a professor of political science at Claremont McKenna College, because nothing similar had been tried before. Today's policies are perhaps bigger, but less novel, he said.

"Today, even though what (President Barack) Obama is talking about is larger, the government already makes up a large fraction of the economy," Pitney said. "Roosevelt was writing on a largely blank slate. Obama is writing on a very crowded one."

After World War II, which prompted unprecedented government spending and brought the country out of the remnants of the Depression, Pierce said the consensus against government involvement shifted.

"When World War II was over, that's when the U.S. officially committed to saying it's the federal government's responsibility to help make sure the economy produces high levels of production, employment and stable prices," he said.

"They said, `We have to recognize the government has a responsibility here in terms of managing the economy.' It can't do it perfectly, and the policies may not always work, but the government can't stand aside."

More than 60 years later, though, there are still questions about how much the government should be involved.

"These policies have always been a source of some controversy," he said. "But many economists would argue the policies ... have created a more stable economic environment overall that we're likely to have had."